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Arbitration Provisions in City Contracts

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Arbitration Provisions(September 6, 2011):  When is the last time you examined the contractual provisions set out in contracts entered into by your city or municipality? Arbitration provisions can be very problematic and a city or municipality should think twice before voluntarily agreeing to arbitration or including such provisions in a contract with an outside party. Why are arbitration provisions discouraged? First, agreeing to arbitration or including such a requirement in a contract may result in the loss of certain protections provided by state law being waived the city or municipality. Second, an arbitrator may not have experience in municipal law, and may apply equitable principles that would not apply in a court of law.

I. Background — Arbitration Provisions in City Contracts:

State law will often provide cities extra protection against damages and lawsuits, such as immunity from liability, which protects a city from judgment even if the legislature has agreed to allow it to be sued; alternatively, there may be immunity from suit which means a city cannot be sued unless it consents to be sued. Tex. Dep’t of  Transp. v. Jones, 8 S.W.3d 636, 638 (Tex.1999).  This is a general statement and many times an actual determination of privileges is fact-intensive.

II.  Arbitration Provisions Can Result in the Waiver of Immunity by a Texas City or Municipality:

However, in Texas, whenever a city contracts with a person or entity, then its immunity from suit is waived. See Texas Local Government Code Chapter 271.152. But damages are limited to factors such as the balance owed for services provided, possible increases for costs to perform as a result of city-caused delays; amounts for change orders authorized by the city, reasonable or necessary attorney fees and interest.  Consequential damages are often limited and exemplary damages are not allowed.  An arbitrator may not follow these limitations, whereas a court by law has to apply these limitations. As always it is recommended that both a city or private party contracting with a city consult with an attorney regarding contracts and the provisions therein. For more information, please contact Leonard Schneider in our Houston office.

Leonard Schneider, J.D., Healthcare Attorney serves for multiple Texas cities and municipalities. Leonard Schneider, J.D., is highly experienced in the legal representation of Texas cities and municipalities.  He serves as outside legal counsel and “City Attorney” for a number of Texas cities and towns.  For a free consultation regarding the inclusion of arbitration provisions in your contracts, call: 1 (800) 475-1906.

Hotel Occupancy Tax Funds – Management and Duty – Part III of III

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Hotel Occupancy Tax Issues -- HOT Funds -- Can Be Complicated(March 30, 2011): In Part I, the Hotel Occupancy Tax (“HOT”) was defined and examples of how it can be used were given. Part II examined the two-part test to determine if a proposed expenditure of HOT funds meets the purpose of the HOT tax.

Many cities will hire a third-party firm or organization to manage and use HOT funds.  Texas law allows this. See Texas Tax Code at § 351.101(c). When approving a contract and funding to a third-party the City Council determines if the proposed uses by the third-party is a permissible use and will “directly enhance and promote” tourism and the hotel and convention industry. See Tex.Atty.Gen.Op. No GA-0124 (2003); Texas Tax Code at § 351.101(b).

A contract with a third-party should reference the statute authorizing the Hotel Tax and duties regarding the expenditures of the Tax. This is because the funds are given to the third-party.  The Contract should also specify that any HOT funds given to a third-party should be kept in a separate account by the third-party and the funds cannot be commingled with any other money. Texas Tax Code at § 351.101(c)

Since HOT funds are taxes paid by the public, a fiduciary duty is imposed on the third-party regarding the management of the HOT funds. Id. At the most basic level, fiduciary duty means the third-party would put the City’s interest above its own in the management and expenditure of HOT funds entrusted to it. Additionally, whether by case-law or statute, fiduciary duty also means the third-party needs to maintain complete and accurate financial records of each expenditure of HOT funds and upon request the records should be made available to the City. See Texas Tax Code at § 351.101(d). The level of financial records kept should be such that an independent party could examine the records and determine if the money was spent appropriately.

HOT funds are a public tax. A City that wishes to contract with a third-party to manage HOT funds should have an independent audit conducted every year or two to determine if the monies are being spent appropriately and accurate records are being kept.

A third-party that wishes to manage HOT funds for a city should put in procedures to make sure the HOT funds are maintained in a separate account and that financial records are kept that will show how, when and on what the HOT funds were spent.  Notably, an officer of a corporation is liable for any tort committed through him or her, regardless of whether the officer personally benefits from the tort committed. McCollum v. Dollar, 213 S.W. 259, 261 (Tex.Com.App.1919); Gardner Machinery Corp. v. U.C. Leas., 561 S.W.2d 897, 899 (Tex.Civ.App.1978, writ dism’d) This includes being individually liable for breaching a fiduciary duty owed by the corporation (third-party) to the City. Gardner, 561 S.W.2d at 900; Searle-Taylor Mach. Co., Inc. v. Brown Oil Tools, Inc., 512 S.W.2d 335, 338 (Tex.Civ.App.1974, writ ref’d n.r.e.).   Always, in the handling of HOT funds, whether a City or a third-party, an attorney should be consulted.

Leonard Schneider Healthcare LawyerLiles Parker attorneys and staff have extensive experience representing Texas cities and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact us at: 1 (800) 475-1906.         


What Can Cities Do About Dangerous Buildings?

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Dangerous Buildings(June 25, 2010): Cities have the authority, usually provided by State statute, to regulate dangerous and substandard buildings and structures.   In Texas, a City has to pass an ordinance to activate its ability to regulate dangerous buildings and structures.  See TEX. LOC. GVT CODE § 214 Subchapter A.

Before taking action against a dangerous building, City officials should check their code of ordinances to make sure they have the ability and authority to regulate dangerous structures.   This authority will include the ability to require the repair, removal, or demolition of the building and to require occupants of a dangerous building to either vacate the premises or relocate.  Common criteria to cause the vacating of a premise include whether or not the building is “dilapidated, substandard, or unfit for human habitation”.

Unoccupied buildings that may pose a danger to the public or be an attractive nuisance to children and/or vagrants are also subject to the regulatory authority of a City.  It does not matter if the building or structure is secured or unsecured.  This broad regulatory authority is given to a City under the umbrella of providing for the “health, safety and welfare” of its citizens.

The City must follow due process and give proper notification to a property owner before taking action against a building. Consequently, property owners, landlords, or investors who purchase property within a city limit should contact the City and determine what city ordinances are applicable to the property.  The same applies to a person who may inherit a building or home, or the business that purchases a property.  This also allows the owner to determine if the City is following proper procedure in giving notice and in its determination that a building is unsafe or dangerous.

Cities should always consult legal counsel to ensure proper procedure is being followed when adverse action taken against a building.  Concurrently, owners of a building within city limits should consult their attorney if they get a notice that their building is considered a nuisance.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Leonard Schneider, J.D.,  or one of our other attorneys at 1 (800) 475-1906.

Contracts with Cities 101:

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Contracts with Cities(May 10, 2010): Inevitably a service provider, such as an IT professional or a vendor supplying coffee or coke machines, will sign a year-to-year or a 3-5 year contract with a City.  Depending on the particular city, the contract may be signed by a City Officer such as the City Manager, City Administrator, or even a Mayor.  As a service provider, you may believe all is well and is happy to have a contract with a client who always pays.  The City personnel are happy to have the service.

It is all fine if the person who signed on behalf of the City had been given authority by the City Council to enter into the contract.  If that person had not been given authority by City Council, then the contract may be voidable.  How can that be?  Surely a service provider can rely upon the authority of a Mayor or City Manager as an agent of the City to enter into a contract.  That is not always the case.

For example, pursuant to Texas law, a City cannot be bound by a contract that the City Council did not authorize an officer or city employee to enter into.  See Stirman v City of Tyler, 443 S.W.2d 354, 358 (Tex.Civ.App.-Tyler 1969, writ ref’d n.r.e.); Alamo Carriage v. City of San Antonio, 768 S.W.2d 937, 941-942 (Tex.App.—San Antonio, no writ).  While the City in all likelihood will have to pay for service rendered up till the time of any termination of the contract, the City will also have the ability to adopt a position there is no contract or the contract is voidable because the City officer or City employee was not given authority to sign the contract.

The City officer or employee should always check to make sure he or she has been given authority to sign a contract, either by City Council vote or by City Council approved budgetary guidelines.  And the service provider should always request that the City officer or employee verify their authority to sign the contract.  For example, you can imagine the stakes are considerably higher for city construction contracts.

This due diligence should be done for all contracts by both City and the service provider and always each party should consult their attorney.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Leonard Schneider or one of our other attorneys at 1 (800) 475-1906.

City / Municipality Statute of Limitations Issues

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(May 10, 2010): Normally there is statute of limitations that will apply to most civil lawsuits.  This means that a claim must be filed in Court within a certain time after the action complained about occurred.  For instance, in Texas, if you are involved in a motor vehicle accident and suffer an injury you must file a lawsuit within 2 years of the date of the accident.  Failure to do so will prevent you from being able to file a lawsuit after the 2 years expires.

A common statute of limitations for a party to bring a lawsuit for breach of contract is four years from the date of the breach.  However, in many states, the statute of limitations does not apply or is greatly expanded for a City or other governmental unit if the cause of action is for a public purpose, such as collecting taxes or recovering money or damages for a breach of contract for public construction.  In Texas, Section 16.061 of Texas Civil Practice and Remedies Code Section provides that the statute of limitations does not apply and does not bar many causes of actions that a city may have against an individual or a private entity.

Courts in various other states have also provided that limitations do not bar a City in certain civil actions. The cases and summaries are provided by the treatise“McQuillin The Law of Municipal Corporations” 17 McQuillin Mun. Corp. § 49:6 (3rd ed.).

In conclusion, Cities should always consult legal counsel on their ability to pursue monies owed or damages to Cities, no matter how long ago the breach or damage occurred.  Concurrently, individual and entities that contract with a City should also consult their attorney in regards to limitations and what measures they can take to alleviate or protect from lawsuits for incidents that occur many years in the past.


Health Care AttorneyShould you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Leonard Schneider or one of our other attorneys at 1 (800) 475-1906.